The Financial Conduct Authority (FCA) has published its latest “Dear CEO” letter to wealth managers setting out its priorities and the key risks posed by the industry. Unsurprisingly, top of the FCA’s list of priorities and issues were:
- suitability/high risk investments and investment scams;
- MiFID: best execution;
- MiFID: costs and charges disclosures;
- Brexit & SM&CR; and
- platforms & switching.
This chimes with our experience that, over 18 months on from MiFID II implementation, there is still work to do. Singled out by the FCA for particular consideration are firms which:
- use a single market maker for the execution of orders;
- do not share their costs and charges with other firms in the distribution chain;
- do not disclose third party costs and charges to their clients especially transaction and incidental costs; and
- offer platform services with inefficient switching processes.
In relation to Brexit, the FCA also warns that it expects UK wealth managers to take "steps available to them" to continue to service EEA customers in accordance with local regulators' expectations and to act in clients’ best interests. Clearly this Brexit paragraph does little to remove the uncertainly surrounding the UK’s 31 October departure date but the letter remains generally useful in highlighting where the FCA is directing its resources and efforts in the wealth management sector.
We recommend firms re-visit each of the areas covered by the letter in their compliance, and management and oversight, committees to satisfy themselves that they are compliant, and that work is progressing appropriately in relation to regulatory change projects such as SM&CR.
On returning from the summer holidays, CEOs may also decide to require updates in each area covered in the letter in their next board meetings, and should scrutinise and challenge the management information provided to support any conclusions drawn. This will be especially important for firms offering platform services given the FCA’s stated intention to review switching processes later this year and again in 2020 and to "take further action if efficiency does not improve".